·
Operating
cost
·
Total
ownership cost
·
Inconvenience
cost
Where
inconvenience cost includes the intangible costs stemming from annoyance and
irritation.
But
as Michal Porter points out, operational excellence is necessary but not
sufficient to maximize the value of process.[ii] To glean the maximum value from an
organization’s resources requires more than operational excellence. It also requires that the processes of an
organization fit in value alignment with each other. A process without Fit can be highly efficient
and effective at creating redundancies and wasted effort. It could result in an organization going
really fast in the wrong direction.
Value
Optimization is a philosophy for increasing process Fit. Value Optimization is an unrelenting focus on
increasing value. Operational excellence
takes a transactional view for reducing costs.
Value Optimization takes a system view for increasing value. Together they help organizations achieve one
or more of the following:
·
Produce
a fixed customer value at a reduced cost
·
Increase
the customer value produced at a fixed cost
·
Raise
competitive differentiation
Applied
together, the philosophies of Operational Excellence with its focus on Function
and Value Optimization with its focus on Fit create highly efficient and
effective processes. Figure 1.11 is a drawing by the artist M. C. Escher called “Day and
Night.” Function is represented by the
efficient flight of the geese. Fit is
represented their ability to fly both day and night; and by the smooth passing
of two flocks of geese, without a single ruffled feather. Together the combined strategy of Fit and
Function enables the geese to complete their migrations efficiently and
effectively.
Figure
1.11: Combining Fit and Function
Flying is a function geese perform
well. But if they could not fit into a
pattern of flying day and night it would take them much longer to reach their annual
destination.
Southwest
Airlines is used as a case study for combining the strategies of process Fit
and Function. In “The Discipline of
Market Leaders” Treacy & Wiersema refer to Southwest Airlines as a leader
in operational excellence. They discuss
how airplane standardization reduces the variety associated with maintenance
and other functions; where variety is the destroyer of efficiency. In “What is Strategy” Porter notes, airplane
standardization also creates an effective fit with the process of gate
turnarounds. By executing faster gate turnarounds than its competitors, Southwest
benefits from more frequent departures and the greater use of its equipment.
The
process strategies of Fit and Function address the issues of the process
cookbook, process rings-on-a-tree, and process spaghetti to increase an
organization’s competitive advantage.
Function, with its focus on cost reduction, is by itself not enough to
fill the gaps in the process cookbook model, eliminate the formation of layer
after layer of process, or stop process bottlenecks from forming. Together process Fit and Function apply a
system-view to maximize process value while minimizing cost.
Figure 1.12 is a matrix of strategies for maximizing process value. The left side of the chart lists the two process
components: process execution and process flow.
The top of the chart lists the two process strategies: Fit and Function. Each quadrant of the chart describes the
approach for achieving the Fit and Function of process flow and execution.
Figure1.12: Process Strategy Matrix
Focusing on only one process strategy, such as applying operational excellence to just quadrant #4, leaves on the table opportunities to maximize value and minimize cost.
Each
quadrant of the process strategy matrix includes a strategy for maximizing
process value and minimizing cost. Each
strategy can be used independently or in combination with the one or more of
the other three. However not applying
all four strategies of the process strategy matrix at the same time reduces
opportunities to maximize value, lower cost, and therefore increase
competitiveness.
Glean
implements the strategies of Fit and Function to glean the maximum customer
value from the available resources of information processes. Later chapters will discuss the principles
behind these strategies and practices for their implementation.
[ii] Michael J. Porter, What is Strategy?, Harvard Business Review, November-December (1996)
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